FTSE 100 closes slightly lower

The drop in the copper price casts a shadow over the City tonight, where the FTSE 100 finished slightly lower at 6685, down 4 points.

My colleague Nick Fletcher reports:

Leading shares continued their losing streak, down for the third trading day in a row after late jitters sent copper prices lower and hit the mining sector.

For much of the day, markets had been edging higher but lurking concerns about tensions in Ukraine and an economic slowdown in China refused to die down and finally got the upper hand. Added to that came talk of another possible Chinese corporate bond default, pushing Wall Street lower in early trading and sending many European markets into reverse.

By the close the FTSE 100 had dipped 3.93 points to 6685.52, having earlier climbed as high at 6718.

With copper falling to a four year low at one point on the Chinese worries, Antofagasta fell 18.5p to 840p and BHP Billiton lost 10p to £18.12.

Another factor is speculation that China could see more domestic bond defaults -- following the first one ever, Shanghai Chaori Solar Energy Science and Technology -- last week.

Analysts are warning that further defaults could send more copper flowing into the markets, as the metal is used as collateral in many opaque loans made in China’s shadow banking sector (Reuters has more details)

4.42pm GMT

Cyprus gets a new central bank governor - Chrystalla Georghadji

Developments in the eurozone today -- Cyprus’s outgoing central Bank chief, who resigned yesterday, has hit back at government’s accusations that he mishandled the Mediterranean island’s near economic collapse.

President Nikos Anastasiades, meanwhile, has wasted no time appointing a replacement to Panicos Demetriades.

Our correspondent Helena Smith explains all:

In a further sign of his no nonsense approach to life, politics and business, Cyprus’ president needed barely 15 hours to appoint a successor to disgraced former central bank governor Panicos Demetriades.

The centre-right leader, who had been openly at war with the outgoing bank chief, an appointee of his own predecessor and unrepentant communist Demetris Christofias, said in a brief statement issued by the presidential palace that he had decided to install auditor general, Chrystalla Georghadji, to the post.

A seasoned technocrat, educated in both the US and UK, Ms Georghadji has a fierce reputation as another no-nonsense figure on the island as the head of an anti-corruption watchdog who regularly reports on misuse of public funds. It will be music to the ears of mission chiefs representing bailed out Cyprus’ lenders at the EU, ECB and IMF, that she is a big advocate of scaling back the island’s public sector and pressing ahead with the overhaul of its near defunct banking system. The 58-year-old will officially assume the role on April 11, a day after Demetriades leaves the post as prescripted by European Central Bank law. The presidential palace said ECB head, Mario Draghi, who had previously expressed disquiet over Anastastiades’ handling of the governor, had been apprised of the appointment.

With her well-established track record as an independent and autonomous figure, Georghadji’s appointment is clearly aimed at dashing notions that she is a political appointee who will simply follow the president’s line.

But Demetriades’ unexpected decision to step down – and his cursory replacement – could set a precedent in the way nation governments treat central bank governors, insiders say.

From the outset the former Leicester University economics professor has made no secret of the fact this his “dysfunctional relationship” with Anastasiades and other central Bank board members had hindered his role in the post. This morning, as it emerged that he had also been given a €250,000 payoff (to enforce his resignation) he hit back with a statement that not only cited “personal and family reasons” for his resignation but rejected accusations that he had failed to take adequate steps ahead of the island’s spectacular banking collapse last spring. Despite the mudslinging – and there has been plenty of it over the past year – Demetriades, who leaves the position less than two years into his five-year tenure, said he had always aimed to act in the island republic’s best interests by ensuring the stability of its financial system.

The statement released by Demetriades’s office reads:

“It was a privilege to serve as Governor of the CBC. During my tenure my actions were always aimed at ensuring confidence and stability in our financial system and I always acted in the best interests of our country.

“Ι wish the CBC every success and I have every confidence that Cyprus will soon restore its financial strength.”

Panicos Demetriades. Photograph: STR/EPA

4.30pm GMT

In other news... the National Institute of Economic and Social Research has predicted that the UK economy picked up pace a little last month.

NIESR estimates that GDP grew by 0.8% in the three months to February, compared with 0.7% in the October-January quarter.

The thinktank also believes the UK will finally reach its pre-crisis peak before the end of 2014.

4.26pm GMT

Andrew Tyrie has just issued his official response to today’s hearing --criticising the Bank of England for destroying recordings of MPC meetings, and over its inquiry over the forex rigging issue:

On MPC records

“I have yet to hear a good argument against keeping verbatim records of MPC meetings, published with a long time lag - probably longer than the maximum term of an external member.

“There seem to me to be a good number of arguments for keeping such records, among them, to bolster public confidence that the minutes published after MPC hearings are an accurate reflection of what was said.”

On the Bank’s forex inquiry

“This is the first real test for the Bank of England’s new governance structures. Early signs are not encouraging.

“It has taken some time for the Bank’s Oversight Committee to take the lead on accusations of misconduct relating to forex.

“Any review commissioned by the Oversight Committee must be demonstrably independent. It should have a remit broad enough to ensure no stone will be left unturned.

“The Committee will look closely at the mandate and terms of reference of the work commissioned from Travers Smith to ensure that it provides for comprehensive coverage and independence.

“The public needs confidence that the Bank’s governance structures will ensure that it gets to the bottom of forex-related misconduct allegations. The public also needs confidence that any misconduct in other areas will be discovered.”

Bank of England quizzed over FX-rigging allegations - what we learned

I’m tempted to call today’s event a ‘marathon’ session, but a world-class athlete could actually have rattled off 26 miles in half the time it took the Treasury committee to quiz Mark Carney and colleagues.

But we learned quite a bit - here’s the key points.

•The governor of the Bank of England, Mark Carney, has warned allegations that foreign exchange rates were manipulated are “extremely serious”, as he and senior colleague Paul Fisher defend the BoE’s role in the affair.

As Martin Wheatley [FCA chief] has rightly said this is as serious as Libor if not more so because this goes to the heart of integrity of markets and we have to establish the integrity of markets. Time will tell.”

Carney also told MPs that the Bank would issue a report to the G20 over the issue, underlining its importance.

• Carney also revealed that the Bank will appoint a new deputy governor, with responsibility for markets and banking.

Their first job is to “conduct a root-and-branch review of how we conduct market intelligence,” he said.

• The Bank’s executive director for markets, Paul Fisher, denied that the Bank had known in 2006 that FX rates were being rigged.

Fisher told the committee that eight-year old minutes, released last week, only showed City traders griping that hedge funds were manipulating the daily FX fix -- not that there was collusion between traders to rig it.

•MPs also demanded to know why an unnamed Bank staff member was suspended last week, but the line manager -- Paul Fisher himself -- had not been.

Carney said there was no reason at this stage to “escalate” the issue, insisting that the staffer suspended was not facing any disciplinary action.

That suspension relates to “the keeping of our rigorous internal control procedures, including around records management and escalation,” he said.

•Carney was asked about reports last weekend that the Bank might appoint a senior external figure to handle its inquiry. The governor said he couldn’t say if this is true, as he’s not on the Bank’s oversight committee, but said he believes it makes to enlist such an outsider to lead the inquiry.

Katie Allen (@KatieAllenGdn)

Carney on speculation a new person being asked to oversee process, "I have not been told that that is the case..." 1/2

You can see the minutes of those 2006 meetings between the Bank and its Chief Dealers subgroup on the Bank’s website: here.

Here’s one crucial paragraph:

It was noted that there was evidence of attempts to move the market around popular fixing times by players that had no particular interest in that fix. This was not in the interest of customers if the market was forced away from where it should be when the fixing snapshot was taken. It was noted that ‘fixing business’ generally was becoming increasingly fraught due to this behaviour.

That’s what Andrea Leadsom was citing, when she asked why talk of ‘efforts to move the market’ didn’t set alarm bells ringing at Threadneedle Street.

2.39pm GMT

Tyrie: Bank of England's problems are being exposed

Andrew Tyrie, who has steered the Treasury Committee since 2010, ends the session by chiding Mark Carney and Paul Fisher over the way the Bank of England has handled the FX scandal.

Tyrie said the session (coverage begins here) had exposed that the Bank’s governance structure -- which was meant to be bolstered since the financial crisis - is “still opaque, complex and byzantine” and must be fixed.

It is now facing its first test... and it’s not doing very well, Tyrie concluded.

Mark Carney suggested the Bank could perhaps learn from the IMF’s own internal evaluation office.

Andrew Tyrie puts his finger on one key issue -- the line manager of the Bank of England employee suspended while the FX probe takes place is one Paul Fisher.

Has Mr Fisher at all involved in the Bank’s inquiry?

Fisher says he is not, and is also not privy to the details of the internal probe - “just in case” it is escalated to include investigating him.

Updated at 2.31pm GMT

2.24pm GMT

Andrea Leadsom challenges Fisher over 2006 minutes

Andrea Leadsom homes in on the key issue -- exactly what was contained in the minutes of meetings between the Bank and FX traders in 2006, that were released last week.

Paul Fisher insists that those minutes do NOT show collusion between traders -- only ‘manipulation’ of rates by people who are not market setters.

Leadsom wants to know the difference -- Fisher explains that in 2006, FX traders were complaining that hedge funds were putting large FX orders through the system around the 4pm London fix (when the official daily rate is set).

Those large orders would move the market against the dealer -- who could potentially run up losses if the markets move against them.

But as Tyrie points out that minutes from 2008 also highlighted concerns that the market could be subject to manipulation.

Leadsom is clearly unconvinced by Fisher’s argument -- if the meeting showed signs of manipulation, why on earth didn’t the bank act? Especially once the Libor scandal gave a clear signal of how markets could be manipulated.

At this point, Mark Carney steps in to explain the distinction between the complaints in 2006 and 2008, and the allegations that broke in 2013.

FX traders want a quiet life, he tells the MPs - and hedge funds putting large orders through the systems messes up their chances of guaranteeing they can deliver the 4pm fix to their clients.

Later, Carney says, some appear to have decided to cheat and collude to make their lives easier (and richer, one MP suggests).

Carney concludes:

That is not acceptable, and has to be prosecuted to the full extent of the law.

Ed Conway (@EdConwaySky)

Paul Fisher squirming as @andrealeadsom attempts to pin down why BoE didn't raise concerns abt forex earlier. Not having a great day

Carney: FX rigging scandal is at least as serious as Libor

Bank of England governor Mark Carney told the Treasury committee that the allegations of foreign exchange rate manipulation is at least as bad as the Libor scandal -- in which traders conspired to fix the interest rates charged between banks.

George Mudie MP, though, isn’t impressed -- accusing Carney of acting like his predecessor Sir Mervyn King by passing the buck onto other people; either the ‘old duffers’ on the Bank’s Court, or to FCA boss Martin Wheatley.

Updated at 6.48pm GMT

1.44pm GMT

The committee are trying to get to the bottom of exactly who is investigating what at the BoE.

What is the Bank’s oversight committee investigating? They are examining if any officials were involved in manipulation, or knew about it and didn’t act.

Carney: this is incredibly important

He tells MPs that it is “incredibly important” for the FX market and “fundamentally important” for the credibility of the Bank of England itself.

I do not want to leave you with the impression that we’ve done something, and now we’ll relax. We are going to pursue this all the way.

We owe it to the public, to parliament, and to our employees - who have acted with professionalism at this time - to address this issue, and we can’t allow any concerns over the integrity of the Bank, Carney concludes.

1.38pm GMT

Co-op CEO is out

BIG NEWS: The Co-operative Group has confirmed that Euan Sutherland has stepped down as its chief executive.

Richard Pennycook, its finance director, has taken temporary control - hours after it emerged that Sutherland had tended his resignation, saying the Group was ungovernable.

Jill Treanor (@jilltreanor)

Richard Pennycook, fd of Co-op, is to be step up to CEO role now that @euansutherland has resigned...

We've not known about FX rigging for eight years -- Fisher

Paul Fisher Photograph: /Parliamentlive.tv

Paul Fisher has denied, robustly, that the Bank of England has known since 2006 that the foreign exchange market might have been unfairly manipulated.

The Bank’s executive director for markets insists that the minutes of meetings from 2006, released last week, only showed that chief dealers were concerned that large foreign banks were putting extremely large buy and sell orders through the system, moving the FX rates and making their lives harder.

We didn’t learn until these specific allegations of FX rigging until last year, Fisher tells the Treasury committee.

As he puts it:

It would be very odd for traders to have come to these meetings and said ‘we’ve been rigging the market, what do you think?’.

Fisher is adamant that he would have alerted the authorities if he’s had any suspicions that foreign exchange rates were being manipulated.

1.01pm GMT

Carney insists that the Bank has “relentlessly” followed up the allegations of foreign exchange rigging.

He also says that he believes it is best to appoint an external person handle the inquiry.

12.59pm GMT

Tyrie asks Carney about reports in the weekend newspapers that the Bank is going to appoint a senior independent figure to oversee the inquiry.

That’s a decision for the Bank’s oversight committee, Carney replies -- he’s not a member, so he can’t comment on whether the reports are true.

12.55pm GMT

Carney outlines how the Bank of England first became aware on 16 October that the investigation into forex manipulation could involve the Bank itself.

We acted swiftly, he said, engaging external legal council just 48 hours later.

He adds that an independent Scotland would also have to hold higher foreign exchange reserves if the financial markets thought that any sterling union was only temporary -- which would put pressure on Edinburgh to run a budget surplus.

Carney keeps repeating that he isn’t a lawyer, but he does sound more negative about the issue than when he gave his speech on the issue in late January.

Faisal Islam (@faisalislam)

Carney points to titans and giants worth £6bn held by Scottish banks as cover for value of banknotes, would require much greater reserves

David Ruffley is now probing about whether Scottish banks would need to move out of an independent Scotland.

Mark Carney says that it is “not clear” that banks would keep their HQs in Scotland -- given the high-value operations in the rest of the UK (ie, the City).

What would the Prudential Regulation Authority do about the issue?

Carney says that a crucial factor is whether Scotland remains a member of the EEA (the European Economic Area).

If it does, then the PRS is limited in its ability to adjust.

Would you act as Lender of Last Resort for Lloyds and RBS if Scotland chose to use sterling without joining a currency union?

Carney says that the Bank would have to take a decision, based on where the banks’ chose to domicile themselves, their capital position, and other measures the Scottish government might take.

He adds that the Bank is “conscious” that acting as a lender of last resort to banks outside the UK does expose the UK balance sheet to potential losses.

12.00pm GMT

Now David Ruffley, Conservative MP, asks how a Yes vote could affect the way the Bank of England worked with banks based in an independent Scotland.

Carney says the Bank would have to evaluate financial firms domiciled in Scotland over whether to continue acting as a settlement agent for those banks, but suggests it would probably keep settling those accounts.

Under European law, he says, there needs to be a decision over where a bank is domiciled.

And an independent Scotland would need to guarantee the deposits of Scottish-domiciled banks that are held in England.

Updated at 12.05pm GMT

11.54am GMT

Carney quizzed over Scottish independence work

Has the Financial Policy Committee, the part of the Bank charged with maintaining financial stability, conducted any work on the possible threat posed by Scottish independence, asks chairman Andrew Tyrie?

Carney says it has not.

Tyrie wants to know why not

Carney says it is not on list of risk the FPC must take account of, and there is a period of time when arrangements could be discussed (if Scotland votes for independence).

Tyrie points out that this risk is coming down the line pretty fast (with a vote scheduled for September this year)

Carney assures the committee that the Bank of England isn’t being negligent -- if there was actually a change to monetary conditions in the UK we would offer clear advice, he says.

Updated at 11.54am GMT

11.49am GMT

Carney says the Bank has not done any thinking on how many seats an independent Scotland would get on the MPC, in the event that it joins a currency union.

11.47am GMT

Liberal Democrat MP John Thurso is next, and tries to expose the flaws in Scottish independence (he represents the Scottish constituency of Caithness, Sutherland and Easter Ross).

Scotland is a small country, he says, would its economy be more volatile if it were independent?

Mark Carney says that Scotland’s economy suffers when energy prices fall, but at present this impact is cushioned because the wider economic weakness triggers more ‘transfer payments’ (welfare payments) to Scotland.

Are small countries more volatile, asks Thurso, citing Portugal and Iceland (both hit hard by the financial crisis).

Carney pauses, thinks, and says he hesitates to come to such a conclusion.

Hosie follows up, pointing out that output growth in Scotland is highly correlated with the rest of the UK -- so is being highly correlated beneficial to creating a successful currency union?

A high correlation of output growth is “beneficial for successful monetary policy”, Carney replies.

Carney repeats that he is only taking a ‘technocratic’ view of the pros and cons of independent Scotland. Ultimately, it is a decision for Scotland.

11.35am GMT

The committee are back, and so is Mark Carney (David Miles and Martin Weale have been released for the day, while Paul Fisher is on a tighter leash and must return to his seat when the committee move onto the forex inquiry).

The era of falling real wages could soon be over, suggests David Miles, who tells MPs:

“I think we’re getting to the point at which average wage settlements are moving above the rate of inflation.”

11.24am GMT

How worried is the Bank of England about the UK recovery, which it described as ‘fragile’ last month?

Carney points to business investment -- if that doesn’t pick up, then the recovery could disappoint, he says.

The risks are to the downside with business investment, he adds.

11.19am GMT

Bank of England: MPC recordings are destroyed

Andrew Tyrie MP asks what happens to the records of the Bank of England’s monthly monetary policy committee?

Paul Fisher, executive director for markets, explains that a recording is taken to allow the Minutes to be written, and that recording is later destroyed.

Tyrie is most unimpressed -- the recording could have real historical value, he says, pointing out that the US Federal Reserve released transcripts of its own meetings in 2008.

Why is the Bank of England not keeping its own records, he demands?

Fisher replies that it can be very hard to distinguish exactly what is being said during the meetings. And the minutes give a true impression of what went on*

Tyrie hits back, asking if the MPC members are shouting and banging the table.

Fisher explains that a ‘free flowing’ discussion doesn’t lend itself well to a transcript, and MPC members might not speak freely otherwise.

Tyrie urges the committee to give serious consideration to keeping the recordings, and (devilishly) suggests Mark Carney should chair the MPC in a way that means the members can be clearly heard. Carney laughs, in a way that suggests he’s not particularly amused.

* - and without the recordings, we’ll have to take his word for it

Sky News’s economics editor, Ed Conway, is aghast:

Ed Conway (@EdConwaySky)

Paul Fisher reveals that MPC does record its meetings but subsequently destroys them. Compare Fed where transcripts are published with lag

It ends with Andrew Tyrie MP asking whether the Bank plans to sell all the £375bn of gilts on its books.

Carney explains that new capital rules means commercial banks will need to hold more assets such as gilts (meaning, I think, that there shouldn’t be a lack of willing buyers)

11.00am GMT

David Miles is confidence that things are looking up in the UK economy -- telling MPs that he is seeing more optimism among small and medium-sized firms than at any time since he joined the MPC [in June 2009, I think].

10.57am GMT

Ed Conway (@EdConwaySky)

Re election Carney says no danger of int rate vote being influenced by political timing <- Tho May decision delayed 48hrs so not on elex day

Back in the Thatcher Room (livestream here), Labour MP John Mann has challenged the Bank of England governor over his comments that there will be more recycling of capital and jobs when rates rise (see here).

Does that just mean more recycling from the north of the UK to the south?

Carney says he was speaking in more general terms, and also denies that the looming UK general election (inked in for May 2015) will affect his vote on when to raise rates, or anyone else on the MPC either.

The London mayor, Boris Johnson, and his predecessor Ken Livingstone have both paid tribute to Crow - famous for industrial disputes and campaigns that delivered pay rises for his members, and occasion disruption to London’s transport links.

Duncan Robinson (@duncanrobinson)

Ken Livingstone's Crow tribute: 'The only working-class people who still have well-paid jobs in London are [RMT] members.'

The Bank of England will announce plans to beef up its economic forecasting division next week.

Asked about the Bank’s (somewhat ropey) track record on economic forecasting, Carney says that the Bank will publish the results of its strategic review next week.

That will include new resources for its forecasting division -- which has been criticised for failing to predict inflation through the crisis, the depth of the last recession, or the recent recovery in the jobs market.

Carney says forecasting is:

Something we have to constantly get better at.

The Bank needs to ask why it made mistakes*, and explain how it is learning from them, he adds.

* - speaking of which, the photo in the last entry is ANDREA Leadsom MP.

10.34am GMT

Bank won't consult Treasury over unwinding QE

Mark Carney says that the Bank of England won’t consult the Treasury before taking the decision to unwind its £375bn bond-buying programme.

He tells the committee that the BoE is likely to consult the Debt Management Office (which sells the debt to fund the UK deficit) over the timing. But the chancellor of the day will not get a say, he suggests.

My view is that it’s a monetary policy decision, Carney says - it’s clearly been delegated to the MPC.

10.31am GMT

Andrea Leadsom MP at this morning’s committee hearing.

Updated at 10.38am GMT

10.30am GMT

MPs seek answers on QE

Andrea Leadsom MP homes in on the Bank’s quantitative easing programme -- when will it start to sell the £375bn of UK debt it bought during the crisis, and how much will that push up borrowing costs?

David Miles suggests that unwinding QE will have little impact, citing academic research that says it could have ‘zero’ impact in a market that is operating at full efficiency.

Leadsom’s not impressed -- dumping £375bn of gilts is only going to move the yield curve one way, she insists.

Carney agrees that selling the bonds bought under QE will indeed have an effect, which is why it will take place gradually and in consultation with the BoE’s Financial Policy Committee.

He also says that the Bank will probably have raised interest rates several times before starting to unwinds QE.

10.23am GMT

David Miles, another external member of the MPC, admits that he’s a bit baffled by the difference between the amount of ‘slack’ in the UK economy, and the ‘output gap’ (see 9.45am for the early exchange).

Cue much handwaving by both Miles and Carney:

It’s about this big.....

10.21am GMT

Carney: outvoted over the output gap

Carney then reveals that he would personally like to publish a measure of the output gap, but he couldn’t persuade the rest of the MPC.

Philip Aldrick (@PhilAldrick)

Carney reveals he has been overruled on the MPC. 'I think we shd publish the output gap but I'm not in the majority on the cttee' he says

Andrew Tyrie asks Carney whether the Bank will regularly issue its own estimate of the output gap in the UK economy, to give a better insight into its forward guidance.

There are no plans at present, the governor replies.

Updated at 10.20am GMT

10.15am GMT

Carney: rates could hit 2.5% in three years

Mark Carney has told the Treasury committee that it’s not unreasonable to think that UK interest rates could rise to 2% to 2.5% over the next three years, in a ‘gradual’ manner.

He told the Treasury committee that deputy governor Charlie Bean had spoken sensibly about this subject yesterday:

Some members of the MPC have put more precise figures on the extent to which interest rates would be expected to rise over the three-year horizon.

Charlie Bean yesterday referenced 2.5 percentage points. I don’t think that’s an unreasonable sense to get across - a 2-2.5 percent bank rate over the course of the forecast horizon.”

10.10am GMT

Is Mark Carney suggesting that the improvements in the UK economy are all down to his stewardship of the Bank of England?

The governor replies that monetary policy is one reason that the economy has improved.

10.08am GMT

Carney is having to defend his new forward guidance, with the committee suggesting that the Bank’s credibility has been hurt by the decision to change the policy after just six months.

Are the new 18 economic indicators that the Bank of England will now consider when deciding when to raise interest rates just a way to create ‘wriggle room’?

Looking a little irked, Carney shoots back that there has been a dramatic improvement in the UK economy since last summer - unemployment has dropped sharply, and the UK economy is growing faster than most of the developed world.

Ed Conway (@EdConwaySky)

To think that barely more than a year ago Mark Carney had a rapturous reception for his first Treasury Committee hearing. V different today

Stepping back a bit - here’s Carney’s comments about house prices, and the concern that people could become overstretched (via Reuters)

Underwriting standards at present of mortgage providers are quite high...

”Our concern is that those underwriting standards will deteriorate and that that deterioration itself would be fed by general improvement in the housing market.”

9.59am GMT

Carney on forbearance and rate rises

The committee is concerned about struggling firms who might go bust when interest rates go up, because they can’t repay their debts.

Mark Garnier MP asks what work the Bank has done on this - how many firms are effectively on life-support and will go under once borrowing costs return to normality (known as “forbearance”)

Mark Carney replies that fewer firms collapsed in the last recession because the Bank acted quickly to loosen monetary policy so quickly. That may have hampered productivity, because less capital was recycled and fewer people were laid off and then rehired in more productive jobs.

The recovery should bring some “normalisation of interest rates”, and reduce forbearance (as firms who are only viable in a low interest rate environment go to the wall) . That will bring some pain, but it should increase productivity, Carney says.

9.52am GMT

Carney says the Bank is developing ‘affordability tools’ to avoid households being given mortgages beyond their means, but cannot influence some of the factors driving up house prices in the UK capital.

Faisal Islam (@faisalislam)

Governor also said there was not much the BoE could do with the part of the London market fuelled by cash buyers "mainly foreign"...

Onto the housing market -- does Mark Carney think rising house prices are a good thing?

It all depends what is pushing prices up, he replies. If it’s because incomes are rising, then that’s a good sign for the economy.

But if they’re being driven up by “extrapolative expectations” (ie, because people think prices will keep rising) then a bubble may be forming, and that’s clearly bad.

The latter case could put “a large number of households in a vulnerable position” that takes a long time to recover from, he cautions.

9.45am GMT

An early difference of views -- Mark Carney suggests there is more than 1.5% of spare capacity in the UK economy (as estimated by the Bank’s own economists).

.. but Martin Weale, an external member of the Monetary Policy Committee, suggests there is less than 1%.

Weale is explaining that he believes official measures can suggest the output gap is bigger than it really is, as new entrants are typically paid less than established workers (making wages a poor measure of output).

Ed Conway (@EdConwaySky)

Carney says his personal estimate of the output gap is at the "upper range" of the Bank's 1-1.5% estimate. Eg more room for economic bounce

Watch the Treasury Committee here

Andrea Leadsom MP: Bank of England may need supervisory board

Andrea Leadsom MP, a member of the Treasury Committee, says today’s hearing (in a few minutes time) will focus on the question of exactly what the Bank of England knew about allegations of rigging in the forex market.

She points to the minutes released last week which appear to show that chief currency dealers were raising the possibility of collusion when meeting Bank officials as far back as 2006. Yet, it appears that that Bank “did nothing”.

If this was indeed allowed to take place over many years, and the bank didn’t do anything to stop it, it would strengthen the case for a proper supervisory board to oversee the Bank of England, Leadsom said.

That is unlikely to go down well with Threadneedle Street, where the BoE is currently watched over by its own Court of Directors (including Carney and the deputy governors).

Leadsom was speaking on the Today programme.

Brenda Kelly of IG explained that there is no central body that sets currency rates -- instead, the ‘4pm London fix’ is taken as that day’s official FX rate. So, in theory, a large bank could flood the market with orders around that time to influence that day’s reading.

8.50am GMT

Reaction to the Co-op chief’s threat to resign:

Shaun Richards (@notayesmansecon)

The Co-op goes from bad to worse as Chief Executive Euan Sutherland offers to resign and says its "ungovernable" http://t.co/ryslGsEhpL

Co-op chief offers to resign as crisis escalates

The chief executive of the Co-operative Group, Euan Sutherland, has threatened to quit.

City editor Jill Treanor reports that Sutherland has said the Group is simply too hard to manage, as the row over his efforts to reshape the organisation, and plans to hike his pay, deepens.

She writes:

The Co-operative Group was thrown deeper into crisis on Tuesday after the new boss Euan Sutherland threatened to resign in the face of opposition to his reforms for the mutually-owned chain of supermarkets, funeral homes and pharmacies.

The Group board convened a late night telephone conference call to agree to recommend changes to its management structure to give Sutherland a seat on the board in a more conventional style for a major company.

Sutherland offered to resign in a letter to the chair Ursula Lidbetter -herself promoted once the bank’s problems were exposed – on a point of principle that the Group was too difficult to govern.

The threat comes two days after The Observer reported that Co-op was planning to pay Sutherland more than £3.5m, and massively boost the salaries and bonuses of other senior staff.

Jill explains:

Sutherland threatened to quit after using Facebook to criticise leaks of his £3.6m pay deal to The Observer last weekend. Sutherland, who took the helm on May 1 after leaving Kingfisher’s B&Q, said on the group’s Facebook page that “an individual or individuals” were determined to undermine him.

BBC economics editor Robert Peston has also been reporting the story on the Today programme. Here’s some reaction:

Richard Edgar (@ITVRichard)

Co-op's Sutherland believes board of 20 is 'ungovernable' - and one of them appears to have leaked the news after emergency meeting last nt.

Treasury Committee chairman Andrew Tyrie has already fired a warning shot at the Bank of England.

He said last week that the Central Bank had been too slow to act when allegations of forex market-rigging came to light:

“Led by the Chairman of Court, there is a strong case that the non executives in the Bank should have taken the initiative on this from the moment the need for external assistance was considered. That was last October, possibly earlier. Yet this issue does not appear to have been raised with Court or the Oversight Committee – the nearest the Bank has to a board – until December.

Indeed, it appears to have taken the suspension of a Bank employee for the Oversight Committee to be fully engaged.”

7.49am GMT

Mark Carney to face Treasury Committee

Bank of England governor Mark Carney.

Good morning, and welcome to our rolling coverage of events across the financial markets, the economy, the eurozone and business.

What exactly did the Bank of England know about the possible rigging of the foreign exchange markets? And why didn’t it act faster when allegations first surfaced that traders had conspired to fix the official forex rates?

These question will be on the lips of the Treasury Committee this morning, when they tackle governor Mark Carney over the latest scandal to rock the City.

The committee will also be quizzing Carney and colleagues over the latest inflation report, and the monetary implications of Scottish independence, in what looks like a mammoth session.

The Bank of England has been dragged deep into the Forex row this month, amid speculation that its own officials had condoned the manipulation of foreign exchange prices.

The Bank suspending an employee last week, and released details of minutes held with foreign exchange traders over many years. They showed that the possibility that the market was fixed could have been discussed as long ago as 2006.

Carney, who only joined the Bank last July, should expect to be challenged over his efforts to modernise the Bank.